Introduction to deducting medical expenses
for taxes

sponsored by the
Stepnowski Law Offices

Throughout the year, and before April 15
rolls around,
you should keep track of your medical and
special
education
expenses as you go along . While this
page is geared to those
with children with neurological impairments,
it does provide an overall
description of the general tax treatment. Did
you know that
treatment
of neurological impairments (that your health
insurer did not pay
because
they were "educational") can be tax-deductible
medical expenses?

Your situation may differ, and if you have
any
questions, consult
a tax professional with print-outs of
the links below since he or
she
may not be familiar with everything a family
with large medical needs
has to go
through.

Meeting the threshold and how it affects tax
savings

Unfortunately,
the Federal government severely restricts the
medical deduction to the
amount exceeding 7.5%
of
your income. Thus, deducting works only
for those who itemize
deductions.
(Most people with a mortgage should itemize
since the interest, real
estate
tax and state income tax deductions carry you
above the "Standard
Deduction"
threshold.) The key here is meeting both
thresholds--until your
medical
expenses exceed 7.5% of your adjusted gross
income, you cannot include
any medical expenses in your deductions.

Example 1: a family with an income of
$50,000 and
therapy bills
of
$12,000
(plus the rest of the family's
medical, conference, orthodonia,
eyeglasses
and other expenses of $2,000) for a total
medical expense of
$14,000.
Since 7.5% of $50,000 is $3,750, the
family can include $11,250
more
deductions. At a tax rate of 15%, the
tax savings are $1,687.50.

Example 2: same family with $100,000
income.
7.5% of
$100,000 is
$7,500. The family can include $6,500
more deductions. At a tax
rate
of 28%, the tax savings are $1,820.

new

new

Example
1

Example
2

Ex.1-(2013)

Ex.2-(2013)

Income

$50,000

$100,000

$50,000

$100,000

@ 7.5 %, threshold

3,750

7,500

5,000

10,000

Total Medical Expenses

$14,000

$14,000

$14,000

$14,000

increased amount to
deductions

+ 11,250

+ 6,500

+$9,000

+$4,000

tax rate

15%

28%

15%

28%

your tax savings

$1,687.50

$1,820.00

$1,350.00

$1,120.00

Note for 2013: the Obama tax law
increased taxes on families with members with
medical needs. (You read that
correctly.) For expenses incurred after
January 1, 2013, families will not be able to
deduct as much on their taxes. The new
columns on the right (2013) show that the
amount of tax savings will be reduced compared
to the the columns on the left (2012), by
several hundred dollars.

Because the Internal Revenue Code
severely limits the deductions of
medical bills, especially in 2013, you may
want to pay these
expenses through a Health Savings Account
(HSA). This type of
plan may be offered by your employer when
paired with a high deductible
policy. The advantage is that the
expenses are paid at
pretax income. The details
are in IRS publication
969, but contact your employer's human
resource department to see if
this plan is offered.

Do not rely on this article as advice.
Other
exclusions
may
apply, such as Alternate Minimum Tax and
upper income restrictions.

What can be deducted

Medical expenses
are the
costs of
diagnosis, cure, mitigation,
treatment, or prevention of disease, and the
costs for treatments
affecting any part or function of the body.
They include the costs of
equipment, supplies, and diagnostic devices
needed for these purposes.
They also include dental expenses.

Medical care
expenses must
be primarily to alleviate or prevent a
physical or mental defect or illness. They do
not include expenses that
are merely beneficial to general health, such
as vitamins or a vacation.

The IRS deems "medical care" expenses as the
amounts paid for the diagnosis,
cure,
mitigation, treatment, or prevention of
disease, or for the purpose of
affecting a structure or function of the body.
Medical care expenses are
limited
to expenses paid primarily for the prevention
or alleviation of a
physical or mental defect or illness.

An
expense which is merely beneficial to general
health is a personal
expense and not deductible. A question
often arises when an item
can be both. The IRS will look to
these factors to determine whether a
dual-purpose item (i.e., onethat
could be used for personal as well as medical
reasons) is primarily for
medical care, including:

the motivation or purpose for making the
expenditure,

whether a physician has recommended the
item to treat
or mitigate a diagnosed medical condition,

linkage between the treatment and the
condition,

proximity in time to the condition’s onset
or
recurrence,

and most importantly, the expense would
not have
been paid "but for" the disease or illness.

To see the detail of the laws and
regulations, click
here:

"Medical expenses;
tuition or
tutoring
fees. If recommended
by the doctor, amounts paid for the
child's tutoring by a teacher
specially
trained and qualified to deal with
severe learning disabilities may
also
be deducted. "

IRS
Circular 230 Disclosure:
United States Treasury Regulations provide
that a taxpayer may rely
only on formal written advice meeting
specific
requirements to avoid federal tax
penalties. Any tax advice in the text
of this page,
does not meet those requirements and,
accordingly, is not intended or
written to be used, and cannot be used, by
any recipient to avoid any
penalties that may be imposed upon such
recipient by the Internal
Revenue Service.